The Daily Screen: The Best Tech Funds

If you jumped into a tech fund this year after ogling over '99 returns, you probably know by now that this year is a world apart.

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Last year was a once-in-a-blue-moon scenario for tech funds. Investors pushed tech stocks to thin-air valuations and kept on buying, boosting the average tech fund to a jaw-dropping 135% return, according to Morningstar. This year, a slowing economy and dipping corporate earnings have whacked big tech shops like Microsoft(MSFT), Yahoo!(YHOO), Dell(DELL) and America Online(AOL). On average, these stocks are down 57% since Jan. 1, and the average tech fund is down more than 29%. The worst-case scenario is the (JAMFX)Jacob Internet fund, which is down more than 75% this year.

Given the record-setting flow of cash to tech funds and the stunning glut of new tech funds out there, plenty of investors showed up just in time to lose a significant amount of money. Because the average growth fund already has more than 40% of its assets in the tech sector, you might wonder if you already have enough tech exposure -- a market weighting is about 27% of your portfolio if we use the S&P 500 as a model.

Topsy-Turvy Tech Tech funds are the decade's darling, despite this year's swoon
	Average Technology Fund	S&P 500
YTD Return	-29.2%	-7.3%
1-Year Return	-15.8	-3.7
5-Year Return	23.1	19.5
10-Year Return	30.3	18.2
Source: Morningstar. Annualized performance figures through Nov. 29.

But if you're looking for a tech fund, despite their current stumble, it's understandable. After all, over the past 10 years the average tech fund boasts a 30.3% return, beating the S&P 500 by some 12 percentage points. In fact, this is the first down year for the average tech fund in 15 years.

How good has the past 10 years been? A $10,000 investment in the average tech fund would be worth more than $160,000 through Oct. 31.

If you're in the market for a tech fund, we've done a little homework for you. We screened the 115-fund category for those funds that beat their average peer over the past one- and three-year time periods. Nineteen funds made the cut; here's a top-10 list, ranked by their one-year returns.

Leading Technology Funds These tech funds have held up the best over one- and three-year periods
Fund	1-Year Return	3-Year Annualized
(ICTEX)Icon Information Technology	28.5%	42.6%
(DRGTX)Dresdner RCM Global Technology I	16.4	64.9
(TVFQX)Firsthand Technology Value	10.2	44.4
(UNSCX)Waddell & Reed Adv Science & Tech A	7.6	44.1
(PPTIX)Principal Preserv PSE Tech 100 Index A	6.2	40
Kemper Technology I	3	38.4
(MSITX)MSDW Instl Technology A	1.2	47.8
(PIVAX)PIMCO Innovation A	-0.1	48.3
(FSELX)Fidelity Select Electronics	-1	35.7
(FTCHX)INVESCO Technology Inv	-2.4	35.3
Avg. Tech fund	-15.8	33
S&P 500	-3.7	13.8
Source: Morningstar. Annualized performance figures through Nov. 29.

This pack of funds has managed to weather this year's storm best through superior stock selection, betting on specialty chipmakers like PMC-Sierra (PMCS) and Applied Micro Circuits (AMCC), while avoiding sagging biggies tied to PC sales, like Microsoft or Dell. We've screened the funds' holdings, but first let's check out the funds themselves.

One that leaps off the virtual page is the no-load (TVFQX)Firsthand Technology Value fund, with guru Kevin Landis at the helm. The fund beats all others over the past five years, and his six-year tenure is the longest among this bunch.

Another intriguing choice might be the (DGTNX)Dresdner RCM Global Technology fund, where Huachen Chen and Walter Price have held the held the reins since the fund's inception at the end of 1995. The pair, who have been running tech funds together for some 10 years, spread their money around the sector broadly and have posted solid results. The fund's 64.9% three-year annualized return beats 98% of the fund's peers, and its 4% dip since Jan. 1 beats 97% of its competitors.

Fidelity cuts the tech sector into thin slices with several sector funds, including (FSELX)Fidelity Select Electronics, which made our list. The behemoth Boston firm rotates its sector fund managers often, but its deep analyst corps has earned the firm a solid reputation for picking tech stocks. For most investors, the best fit is the broad (FSPTX)Fidelity Select Technology fund, which disperses money around the sector. Keep in mind, however, that these funds levy a maximum 3% front-end sales charge or load.

Because all of these funds have hung in there vs. their peers this year, each appears to be somewhat of a survivor. But if you're wondering which have been the least volatile, the no-load (ICTEX)Icon Information Technology fund has been steadier than the average tech fund, according to Morningstar. The same can be said for the Kemper Technology fund and (UNSCX)Waddell & Reed Advisor Science & Technology fund, but both of these broker-sold funds recently changed managers, so it's hard to say if they'll keep their measured pace.

In addition to this list, you might also consider the Nasdaq 100 Trust Shares (QQQ). This is essentially a bundle of the biggest nonfinancial stocks that trade on the tech-laden Nasdaq exchange. The Trust Shares, which trade on the American Stock Exchange like a stock, gives you access to tech leaders, with low expenses. For more details on exchange-traded funds, or ETFs, check out this primer.

If you're the curious type and want to see what has propelled these leading tech funds, here's a look at the cumulative top-10 picks among the 10 leading tech funds. Noticeably absent, aside from chipmaker Intel (INTC), are several bellwethers such as Microsoft, IBM (IBM) and big PC shops.

Instead, these funds are betting on "New Tech" shops that rely on Internet growth and the buildout of the world's communications networks, rather than PC sales. TheStreet.com has noted tech funds' flight from Old Tech to New Tech this year, and this shows the migration is still going strong.

Under the Hood The stocks with the biggest weighting in the combined portfolios of the 10 above funds
Stock	Weighting in Top-10 Funds	Number of Top-10 Funds Owning the Stock
PMC-Sierra(PMCS)	2%	7
Applied Micro Circuits(AMCC)	1.5	5
Analog Devices(ADI)	1.3	6
Corning(GLW)	1.3	6
Veritas Software(VRTS)	1.2	6
Maxim Integrated Products(MXIM)	1.2	7
Intel(INTC)	1.2	6
Siebel Systems(SEBL)	1.2	5
Sun Microsystems(SUNW)	1.2	7
Vitesse Semiconductor(VTSS)	1.2	7
Source: Morningstar. Holdings as of funds' most recent portfolio reports.

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